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Finance Act 2019

Finance Act, 2019 Summary & Tax rate card

This document contains amendments made in relevant laws through Finance Act, 2019 (i.e. Tax year starting from 1 July 2019 to 30 June 2020) in Income Tax, Sales Tax, FED and Customs law.

We at Sharjeel Ayub & Co (Sayub) made an effort to present above mentioned amendments in simplest possible form so that readers get an understanding for proper tax planning.

Sayub comments contained in the documents represent our views / interpretations of the amendments therefore should not be taken conclusive on legal ground without our prior advice.

We sincerely believe that this document is simple and as precise as possible nevertheless, you may ask for further details by contacting us.

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Fbr rates for property

FBR rates for properties

Fbr rates for property in Pakistan is hot issue these days as FBR has recently made upward revision in already prescribed FBR rates.

We believe most of our readers have an understanding of FBR prescribed rates for valuation of Immovable properties. For those who are not clear about these rates, following a detailed information about these rates and why these rates were introduced.

Why there are FBR rates for property

Cost of any asset we purchase or expense we incur has direct connection with FBR, as it is FBR’s duty to be satisfied whether the money used to buy those assets or fund those expenditures were properly taxed at first stage (at the stage when this money was earned). In case there is any indication that buyer is not taxpayer / non filer then it creates doubts about whether the money is tax-legal. So FBR can initiate action against the buyer. We understand that it is not necessary that all buyers should be taxpayers or filers there are exceptions available within the law itself.

So FBR can initiate action against the buyer. We understand that it is not necessary that all buyers should be taxpayers or filers there are exceptions available within the law itself.

Keeping you in above narrated scenario, you would agree that the single most important thing would be the value of that asset or expenditure as in case of underdeclaration, FBR would not be able to investigate the tax leakage.

Lets understand this by an example.

Lets assume Mr. A has been taxpayer but he usually understate his income by 50% i.e. if he earns Rs 1,000,000/- he declares only Rs 500,000/- and remaining routed off the records cash or benami transactions. By doing this Mr. A has accumulated a wealth of Rs 5,000,000/- but officially has only Rs 2,500,000/= (due to underdeclaration). If Mr. A buys any asset worth Rs 5,000,000/= the FBR may questions the difference of Rs 2,500,000/= since FBR records shows Mr A’s worth as Rs 2,500,000/-.

Lets assume Mr. A has been taxpayer but he usually understate his income by 50% i.e. if he earns Rs 1,000,000/- he declares only Rs 500,000/- and remaining routed off the records cash or benami transactions. By doing this Mr. A has accumulated a wealth of Rs 5,000,000/- but officially has only Rs 2,500,000/= (due to underdeclaration). If Mr. A buys any asset worth Rs 5,000,000/= the FBR may questions the difference of Rs 2,500,000/= since FBR records shows Mr A’s worth as Rs 2,500,000/-.

Now here comes the role of real estate market, which has been favourite arena for tax-evaders. In Pakistan immovable property has to be registered with registration authority where value is taken as higher of actual deal rate or rates as per registration authorities’ own books. For example in Sindh, if any property is transferred revenue department would compare the actual deal rate (communicated by buyer / seller) with rates as per their books (as per Sindh provincial law) and choose higher of two to apply registration / transfer charges.

We understand that these rates were introduced to curb underdeclaration of immovable properties rates. For example if any property is Rs 1 million as per provincial books but actual deal is executed at Rs 2 million then Rs 2 million (Higher of Rs 1 million or Rs 2 million ) would be considered for registration / transfer charges.

It is not difficult to manipulate actual deal rate for example in above example if buyer / seller intentionally under-declare their deal rate to as low as Rs 100,000/- even then the system would consider Rs 1,000,000/- (being higher of Rs 100,000 or Rs 1,000,000) for all official purpose i.e. registration / transfer etc.

However this Rs 1 million was required to be updated from time to time so that any manipulations by buyer /seller would not have any effects on Government’s Revenue. Unfortunately those provincial rates were not updated and the situation become weird as provincial values are very low when compared with actual market of immovable properties.

Buyers / sellers were taking advantage, of this legal delay in update of values, by declaring lower rates of actual deal.

The most problematic part was not the registration / transfer charges the Government was losing due to this delay in value update, but the value to considered for the purpose of reconciliation by FBR of the taxed earned money was also the same provincial value. FBR despite knowing that the person cannot purchase any particular asset, due to his low wealth position, was not able to take action as the values were supported by provincial authority, and FBR was not empowered to go against those rates as per Income Tax law.

In this way tax evasion, was to some extent, took support from provincial law. However in the year 2016, Federal Government feeling the loss caused due to this tax leakage started its efforts to streamline provincial authorities immovable properties rate in line with market rates which was declined by Provincial authorities.

Resultantly, FBR traveled long route of prescribing FBR rates for property in almost all areas in Pakistan (however these do not cover whole Pakistan but major cities). These published rates are applicable for collection of Federal levies at the time of registration / transfer of immovable properties.

Initially, immovable properties rates for major cities in Pakistan were published in the year 2016 in the month of July. However these rates were not equal to the market rates but were representative of almost 30% to 40% of the actual market rates which were somehow better than the provincial rates.

However after lapse of almost two and half years the Government felt the need to revise these rate in upward direction.

For immovable properties rates as prescribed the year 2016 please refer our post Click here

City-wise FBR rate for property 2019-20

Rawalpindi

Jhang

Gujrat

Sukkur

Sialkot

Sargodha

Sahiwal

Quetta

Peshawar

Multan

Mardan

Lahore

Karachi

Jhelum

Islamabad

Hyderabad

Gujrat

Gujranwala

Faisalabad

Abbottabad

Bahawalpur

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tax on rental income

Tax on Rental Income 2019-20

If you are searching for Tax applicable on rental income from property in Pakistan, your search ends here on this post.

Amendment made in income tax law through Finance Act, 2019 results in addition of more slab rates applicable to rental income of property.

No income tax is applicable for annual rent income which is equal to or less than Rs 200,000/-

In case the tenant is withholding agent for tax purpose, he will deduct tax according to the following slab at the time of payment of rent.

Tax rates applicable on rental income (also Withholding tax rates)

SNo

Gross amount of Rent


Applicable rate (For individual & AoP)
1


Does not exceed Rs 200,000


Nil
2

Rs 200,000 to Rs 600,000


5% of the gross amount exceeding Rs 200,000
3

Rs 600,000 to Rs 1,000,000


Rs 20,000 + 10% of the gross amount exceeding Rs 600,000
4

Rs 1,000,000 to Rs 2,000,000


Rs 60,000 + 15% of the gross amount exceeding Rs 1,000,000
5

Rs 2,000,000 to Rs 4,000,000


Rs 210,000 + 20% of the gross amount exceeding Rs 2,000,000
6

Rs 4,000,000 to Rs 6,000,000


Rs 610,000 + 25% of amount exceeding Rs 4,000,000
7

Rs 6,000,000 to Rs 8,000,000


Rs 1,110,000 + 30% of amount exceeding Rs 6,000,000
8

Exceeding Rs 8,000,000


Rs 1,710,000 + 35% of amount exceeding Rs 8,000,000

(Source: Finance Act, 2019 effective from 1st July 2019 to 30 June 2020)

Illustration

Case I

In case rent of building is Rs 25,000 per month which means annual rent of Rs 300,000/- it will fall under 2nd slab and annual tax shall be Rs. 5,000 [5% of 100,000]

Case II

In case rent of building is Rs 170,000 per month which means annual rent of Rs 2,040,000/- it will fall under 5th slab and annual tax shall be Rs. 218,000 [20% of 40,000 + Rs 210,000]

Beneficial or not?

One may be curious to know whether the amendment as aforesaid and revised rates are beneficial or cruel to the taxpayers, so they would be happy to know that revised rates are carefully aligned with previous regime where income was taxed on NET basis. Average rate of tax in this regime is 3% to 11%.

You may contact us for any query or tax advice.

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fbr

Sales tax registration process 2019

Sales tax registration process has been recently simplified by FBR. This post is going to be a pain reliever for many small and medium business owners who are unregistered for sales tax purpose and the companies they buy products stopped selling goods to them due to their unregistered status.

The Government in its latest Budget i.e. Budget 2019 or Finance Act, 2019 made commendable efforts for documentation of economy. However some sectors of the economy believes that these measure are abruptly introduced by the Government, without denying the need for documentation they believe the implementation of these measure could be made in steps wise setup.

Without being biased on the Government’s step or the reaction of those steps by the business community we believe that the Government is simultaneously facilitating the people for implementation of it documentation of economy drive.

One of the facilitations provided, which we believe ‘Pain reliever’ is simplification of Sales tax registration process and removal of human intervention from the process. However minimal involvement of FBR officials is still there in the form of physical site verification but this is done after approval of registration which means it does not hurdles your business, you can start your business transactions from the very moment you got registration.

Before this simplified process for sales tax registration, business owners had to work both ways i.e. official and unofficial way to get it done. Further the time to get registration for other than manufacture business was not less than 15 days and for manufacturing business registration it was 30 days to say the least. Pertinent to mention that during this period you were not allowed to transact your business legally which includes sale, purchase and import of goods or machinery.

One can understand the pain of restriction on business when business owners are all-ready to get registration. What was taking that much time for registration of business ‘willing’ to get registration?. The answer to this question is well known to FBR, all we know is that the same registration is done in minutes after the introduction of this new process.

So, coming to the new system, lets discuss briefly about the process and time required.

Process for sales tax registration :

The process starts with online application for which you need following

1.            Two Pictures of Office / Shop / Warehouse (One from outside)

2.            Picture of electric meter

3.            Electricity bill

4.            Business Bank Account maintenance certificate

5.            Pictures of Plant and Machinery (only in case of Manufacturer)

6. Code received on mobile of any of the selected Director of the Company (only in the case of Company)

Note: Location services must be “on” in your mobile while taking photos

Time required for sales tax registration:

1 hour. For manufacturer and non-manufacturers.

After sales tax registration compliance:

1. Once registration is complete and sales tax registration number is allotted within 30 days, you will need to visit any NADRA center for bio-metric verification, in case of company the selected director’s visit is required. This is very important step as the consequence of not doing this step will make your registration ‘inactive’ which will expose you to the same old methods of getting things done officially or unofficially to make your registration active again. So it’s very important to get this step done as soon as possible within 30 days of registration.

2. Monthly sales tax return filing After registration, sales tax return filing becomes mandatory even if there is no activity or you got registration on the last day of the month. You will need to calculate your sales payable (if any) on 15th day of the month subsequent to registration and file sales tax return on 18th day of the month subsequent to sales tax registration.

3. Facilitate visit by FBR officials Even in the new process, in the case of manufacturers, FBR officials would visit the manufacturing site (day, time the name of person visiting would be informed in advance to avoid any confusion or mal-practice). Physical inspection thing is fair enough in view of mal-practices business owners do, for example there are many cases discovered by FBR where there was no manufacturing facility was available and the registered person was enjoying benefit that are available to a manufacturing concern only.4. Reply to any notice issued by FBR. Notices from FBR should be respected and taken seriously as FBR is one the most powerful fiscal authorities in Pakistan further being Government’s functionary it should be treated with priority. Having said that, the Sales Tax Act, 1990 requires every registered person to provide any information that may be requested by FBR from time to time. In case of non-compliance penalty as well as other repercussions will follow. We tried to cover major difficulty areas for sales tax registration or FAQs related to the subject.

Caution

Nonetheless, our readers are requested to seek professional advice before concluding anything based on the information provided above. Before closing this post, we feel it appropriate to inform that the new process has all good things to do, however there is no option of modification therefore you need to do it correctly in the very first time. You may contact us for more information.

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Income Tax Return form 2019

Draft for Income Tax return form 2019 is available for testing purpose which means it cannot be submitted at this stage, however once expected formula errors are corrected by FBR the return shall be ready for submission.

To have look on the returns as proposed by FBR please follow the link to FBR official website

Click here for Income Tax return for Company

Click here for Income Tax return for Salaried Individuals , Business Individuals and Association of Person

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Are you confident about your tax filing ?

It is misconception in Pakistan that return filers are generally questioned more than anyone else, there may be other reasons for this, but in our 25 years of practice we generally encounters issues created by tax filers for their own selves due to “incorrect” tax filing inviting FBR to take action.

When comes to tax filings, there is certain group who dont prefer to file it at all.

However there are filers as recently FBR announced surprisingly great increase in Tax filers, however the question whether they are confident about their tax filings is unanswered in many cases.

In many cases, simple transactions are carelessly declared by novice consultants or by taxpayers themselve resulting in undue notices.

This creates overall bad impression that FBR issues notices to FILERS however this not correct when Income Tax return with errors is filed.

Therefore we believe one should be very careful while filing his / her income tax return to avoid tax notice, as tax filing does not automatically qualifies it to be “Correct” filing, your Income tax return has to pass the test of assessment by FBR.

For more information please watch the attached video or contact us.

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2nd Reminder by FBR to file Income Tax Returns

This is May 2019 which is the second last month of the tax year 2019, and FBR is doing much needed action which is to REMIND the tax filers who missed to file their Tax returns to FILE all previous returns so as to avoid avoidable penalty for late filing. Please note that there is a minimum penalty of Rs 20,000/- ( Rupees Twenty Thousand Only) in case return is filed late thats not complete here there is an additional per day penalty @0.1% tax due. Therefore each passing day has its consequence of increasing penalty amount. However this additional penalty can be avoided.

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Who are Tax filers in Pakistan

This video explains about confusion that many have about who is tax filer. Generally taxpayers believe themselves as filers being taxpayer which is not the case. In order to become tax filer one need to file returns of income regularly once in a year.

Recently FBR has extended the deadline for filing Income Tax Return 2018 till 30th April 2019. Which is believed to be last chance given by FBR to become filer.

In order to have insights about how tax filing works we can start short video series to better demonstrate key message.

In case you want to file your Income Tax returns to become filer but unsure about where to start or what is required for filing please leave a message in Contact us section. Our team of professionals will reply your message without any cost.

We believe most the taxpayers in Pakistan do not know about the process how to file and become filer.

It is important to mention here that tax return filing does not necessarily requires tax payment. Your income may be exempt but the fact would be known to FBR once you start filing and declare this fact to FBR.

Why to pay more taxes when you are already paying lot of taxes already. Return filing saves you from undue unnecessary taxes.

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FBR crackdown against non filers

Govt. is All Set to launch Crackdown against non-filers

The year 2018 was been different from the previous years’ in terms of increase in number of taxpayers in Pakistan. This increase is due to numerous restrictions and taxes imposed on Non-Filers by the Govt. of Pakistan. The Federal Board of Revenue has already crossed the mark of 1.8 million taxpayers in the tax year 2018, but this isn’t enough.

Crackdown against Non-filers

Recently, state minister for revenue Mr. Hammad Azhar has stated the Government has planned a cracked down against non-tax filers in May 2019. As per his statement, there are still forty to fifty hundred thousand non-filers in our country, who are liable to file their tax return but haven’t filed yet. This crack down would badly affect those people who have their National Tax Number (NTN) and haven’t filed their tax return for the year 2018 or earning an income more than 400,000 rupees and haven’t formed their National Tax number (NTN) in order to file their tax return for the year 2018.

Government has already provided ample time

Recently, the Govt. of Pakistan announced to extend the date for filing of income tax return for the year 2018 till 31st March 2019 and it was further extended by the Federal Board of Revenue (FBR) till 30th April 2019. This is a big opportunity for those who were left out to be added in the Active tax payer list and as well as to those who are liable to file their income tax return and haven’t formed their NTN yet.

Can you become filer?

Don’t get busted and avail the opportunity before 30th April 2019 to become filer. All you need to do is follow the four simple step and add yourself in the Active Filer List (ATL)

  1. Get your National Tax Number. Share with us some of your personal information such as your CNIC, your Cell number and your email address.
  2. Update your Personal and/or your business information in Form 181.
  3. File your Income Tax Return. Share your salary or business income details with us and we can do the job for you
  4. Your Wealth details. Share with us details of asset you own and liabilities you owe and consider the job done.

Act now before the time ran out. Remember tax evader will have to face strict legal actions taken by federal board of revenue. So don’t be a tax evader, be a tax filer.

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Filers and non filers

Another Chance by FBR for non-filers to become Filers

Another chance to become filer.

The Federal Board of Revenue (FBR) has extended the date for submission of Income Tax Return for the year 2018.  It is very important to note that FBR has also announced that in order to be in the filer List, taxpayer has to submit their Income Tax Return within due date. Submitting your income tax return after the specified due date would not include you in the Filer list. Previously the due date for submission was 17 December 2018. But Govt. of Pakistan had decided to give some time to taxpayer who filed late or were unable to file their annual return and extended the due date to 31st March 2019. Now the FBR has decided to further extend the due date till 30th April 2019.

You may access circular from FBR website Click here for Circular extending due date of Income Tax Returns Click here

Become filer in four simple steps

After the Govt. of Pakistan decided to extend the due date for submission of Income Tax return till 31st March 2019, the Federal Board of revenue has announced to further extend the due date till 30th April 2019. So this is the best time for new filers to get on board. Here are some simple four steps through which you can get yourself in the filer list.

  1. Get your National Tax Number. You need to provide your CNIC number, your Cell number (Active in Pakistan) and your email address.
  2. Based on your income i.e. Salary or business we can file your Income Tax Return.
  3. Based on the information you provide, we can prepare your Wealth statement.
  4. You will become filer within 12 Business hours.

Good News for Non-resident Pakistanis

The Federal Board of Revenue has decided to extend the due date for submission of income tax return till 30th June 2019. This is a big opportunity for all the Pakistanis residing abroad and are non-resident for tax purpose in Pakistan. After the initiative taken by the current government regarding filers that whoever filed the Income Tax return for the year 2018 in due date will be added to Active Taxpayer filer list, this has impacted hugely to those Pakistani who are Non-resident (still non-filer) and because of some strict initiatives taken by the Government for non-filers. So, worry no more, and become filer before 30th April 2019 and enjoy the benefits as a filer provided by the Govt. of Pakistan. Some key comparison between being filer Vs being non-filer

Filer                                                                                                          Non-Filer

Tax on Cash withdrawal over Rs.50,000 NO Tax on Cash withdrawal over Rs.50,000 YES
Tax on Transfer of funds over Rs.25,000 NO Tax on Transfer of funds over Rs.25,000 YES
Purchase of Car over 1300 cc Possible YES Purchase of Car over 1300 cc Possible NO
Purchase of Property over Rs.40 million possible YES Purchase of Property over Rs.40 million possible NO

The Pros and Cons for filer and non-filer list is longer than you think. So, don’t waste time and become filer in four simple Steps.

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